September 5 2012
Vicki E. Alger
How will the Obamacare tax on the uninsured work? Not well, according to a recent analysis from The Tax Foundation:
On June 28, 2012, the U.S. Supreme Court upheld the Patient Protection and Affordable Care Act (ACA), also known as “Obamacare,” as a legitimate exercise of Congress’ power to tax. Our brief to the Court asserted that the individual mandate is a penalty and not a tax...
The Supreme Court decided to treat the individual mandate as a tax instead of a penalty, partly on the basis that the mandate would not impose an “exceedingly heavy burden.” This view is not supported by the numbers. The tax/penalty would be at least $1,000 for most of the uninsured and more than $12,000 for high-income earners. Low-income families would be hit the hardest, as the tax would be as high as 10 percent of income. As a result, it is estimated that about half of the uninsured will either receive coverage under Medicaid or choose to purchase insurance through exchanges, rather than pay the tax. The main effects would be 1) a transfer of wealth from the uninsured to the healthcare industry, and 2) more healthcare consumption. The U.S already spends roughly twice as much on healthcare as any other country.
For those who choose to remain uninsured, and are not otherwise exempt, the tax/penalty would carry with it exceedingly high additional burdens in the form of compliance costs, due to complexity and non-transparency, as well as administrative costs, as we ask a revenue agency to verify insurance. Finally, the economic distortions are likely to be large, if unpredictable. The uninsured would certainly have an incentive to reduce their income, either by working less or finding and creating tax shelters.
What kind of figures do the Supremes need before they deem taxes as burdensome penalties?